US tariffs could trigger a trade war and recession

US stock prices rose following Republican candidate Donald Trump’s election victory, as investors welcomed his promises to cut taxes and reduce regulations on businesses. While many believed his tough talk on tariffs was just a negotiation tactic, Trump surprised markets by implementing them early in his term, with the latest round introduced on April 2.

As a result, the S&P 500 has dropped sharply (about 13% since the start of April) due to growing uncertainty over how the tariffs might disrupt global supply chains and US trade relationships, potentially slowing economic growth.

Major Tariffs Imposed by President Trump

Since the beginning of his second term, Trump has implemented sweeping tariffs on nearly all US trading partners. These include:

• Steel and aluminum: 25% tariff on all imports
• China: 56% tariff on all imports
• Japan: 25% on vehicles, 24% on other goods
• European Union: 20% of selected products from certain countries
• United Kingdom: 10% on certain imports
• Canada: 25% on most products, including 10% on energy items
• Mexico: 25% on all imports
• Taiwan: 32%
• Vietnam: 46%
• Cambodia: 49%
• Sri Lanka: 44%

Potential Trade War

On April 6, China retaliated by imposing 34% tariffs on US imports, responding to the latest tariffs implemented by President Trump on April 2. In turn, Trump threatened an additional 50% tariff on Chinese goods, giving China until April 8 to reverse its decision. China escalated further, warning it would impose 104% tariffs if Trump followed through on his threat.

The situation isn’t limited to China. Other parties, such as the European Union, are considering retaliatory measures against the US. Meanwhile, the United Kingdom has taken a more diplomatic approach, choosing not to impose any tariffs on American goods for now, and actively working toward a trade agreement to avoid the current US tariffs altogether.

Possible Stagflation

These tariff battles have sparked fears of a downturn in the US economy. Investors are increasingly concerned about the possibility of a recession, which led to the latest market losses being the steepest since the COVID-19 crash in 2020.

There’s growing speculation that the US economy may contract in the fourth quarter, possibly leading to a stagflation scenario (a mix of high inflation and slowing growth) fueled by tariff-related supply chain disruptions.

Employers may also begin cutting jobs or slowing hiring, especially in vulnerable sectors like transportation and manufacturing, where employment is already on the decline.